New York University’s Thomas J. Sargent and Princeton University’s Christopher A. Sims shared the 2011 Nobel Prize in Economic Sciences for their work in sorting out cause from effect in the economy and policy.

« Although Sargent and Sims carried out their research independently, their contributions are complementary in several ways, » the academy said. « The laureates’ seminal work during the 1970s and 1980s has been adopted by both researchers and policy makers throughout the world. Today, the methods developed by Sargent and Sims are essential tools in macroeconomic analysis. »

Sargent’s work suggests that government stimulus programs such as those advocated by John Maynard Keynes have a limited effect on the economy because consumers and companies realize the measures will be temporary. That’s an argument that Republican lawmakers have used in opposing President Barack Obama’s proposals for spurring growth.

The award to Sargent « is very much a ‘non-Keynesian’ prize, » Tyler Cowen, professor of economics at George Mason University in Fairfax, Virginia, wrote on his blog.

Professor Sims doesn’t want to be pigeonholed. “I’m not ‘non-Keynesian,’ ” he said, adding that he has been an active “promoter of new Keynesian macroeconomic models,” because they “are the place in our profession where theory and data and policy decision-making are coming together.”

Professor Sims spoke favorably of the Obama administration’s fiscal stimulus programs, which are Keynesian in their countercyclical spending. “An expansionary fiscal policy is probably what we need right now,” he said.

Sargent’s work suggests that government stimulus programs such as those advocated by John Maynard Keynes have a limited effect on the economy because consumers and companies realize the measures will be temporary. That’s an argument that Republican lawmakers have used in opposing President Barack Obama’s proposals for spurring growth.

The “non-Keynesian” label irks him particularly. “That’s just off base,” he said. “Keynes was a very good economist. He was brilliant. He had wonderful insights. His work has inspired me many times.”
Still, early in Professor Sargent’s career, he was known as one of the founders of the “rational expectations” school, which has sometimes been thought to be un-Keynesian. He says it actually “tied down an important loose end in the kinds of theories Keynes was building.” Keynes, he said, believed that expectations were all-important in determining economic activity, but didn’t have the mathematical tools needed to nail down all his concepts.

Thomas Sargent, by contrast, became, in his words, « more conservative, » because of the Vietnam war. Here’s an excerpt from an interview with Arjo Klamer:

Klamer: Did you go to Vietnam?

Sargent: I went through ROTC, was commissioned, and then worked in the systems analysis office of the Pentagon. It changed me in some ways, made me more conservative. I came to understand more clearly the limitations of government actions. It was a learning experience. My conclusions came from seeing the whole decision-making process by which the US got into the war: how we evaluated the situation, how we processed the data from the war, how we understood our options, what we saw as the resources and costs in Southeast Asia, and what we thought was the likely outcome. We didn’t do a very good job. There was an incredible volume of inefficient and bad decisions, which one must take into account when devising institutions for making policy.